Luxembourg - The European Central Bank left interest rates
on hold at a record low of one per cent Thursday as it sizes up the
economic fallout from the global recession.
Meeting in Luxembourg at one of its regular out-of-town sessions,
the Frankfurt-based ECB's decision to leave rates in the 16-member
eurozone unchanged for the second consecutive month was in line with
analysts forecasts.
Moreover, many analysts believe that borrowing costs in the
currency bloc could be on hold well into 2010 as growth in the
eurozone economy struggles to gain traction following the world's
biggest economic crisis in more than six decades.
The ECB announcement on rates came despite the release of data
ahead of the meeting showing eurozone unemployment climbing and
inflation tumbling to below zero for the first time since the
currency bloc was forged a decade ago.
This in turn has helped to stoke fears about the threat of
deflation.
Consumer prices slipped by 0.1 per cent in June compared to the
same month in 2008, the European Union's statistics office, Eurostat
said Wednesday.
This took inflation well below the ECB's annual target of close to
but below two per cent and came in the wake of the eurozone economy
shrinking by 4.8 per cent year-on-year during the first three months
of the year.
The buildup to Thursday's ECB meeting follows a steady stream of
forward-looking economic sentiment surveys pointing to expectations
of a turnaround in the European economy as the year unfolds.
Economic confidence in Europe rose more than expected in June to
reach its highest reading in seven months, a key European Commission
report released Monday.
Despite tentative signs that the recession might be loosening its
grip on Europe, the Swedish central bank, the Riksbank announced
ahead of the ECB meeting Thursday that it was cutting interest rates
to 0.25 per cent. Sweden is not a member of euro currency bloc.
As a result, the market focus is likely to be on ECB chief Jean-
Claude Trichet's press conference set down later Thursday for
indications as to whether it believes a more positive economic
picture is starting to emerge.
In his press conference, Trichet might also provide more details
at his press conference of the ECB's plans to help spur economic
growth by buying up to 60 billion euros (84 billion dollars) of
covered bonds, which he outlined a month ago.
But analysts believe Trichet is likely to insist that it is too
early to say what impact the ECB's move last week to inject a massive
442 billion euros of liquidity into the banking system has had on
shoring up financial market confidence.
However, since the ECB's meeting four weeks ago the bleak eurozone
economic data has continued to roll in with factory order books, as
well as production, shrinking, exports slumping and unemployment on
the rise.
The numbers out of work in the eurozone jumped more than than
forecast in May to reach its highest level in more than a decade, the
European Union's (EU) statistics office said Thursday.
The May increase pushed seasonally adjusted unemployment up by
273,000 to 9.5 per cent compared with a 9.3 per cent in April amid
concerns that the lay-offs will surge by the end of the year as the
recession catches up with the labour market.
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